Saturday, February 17, 2007

Drums of War

"Attacking Iran will be a crime against peace, a war crime. Those conducting military operations will be violating the Nuremberg Principles, the Geneva Conventions and the Laws of Land Warfare. Prosecution for commission of war crimes is possible.

I appeal to the conscience of US Air Force and US Navy pilots and military personnel who command cruise missiles and pilot bombers and those who plan the missions for the pilots and missile commanders. I ask that they refuse what I believe will be unlawful orders to attack Iran."

Colonel Ann Wright


At a farewell reception at Blair House for the retiring chief of protocol, Don Ensenat, who was President Bush's Yale roommate, the president shook hands with Washington Life Magazine's Soroush Shehabi. A grandson of one of the late Shah's ministers, Soroush said, "Mr. President, I simply want to say one U.S. bomb on Iran and the regime will remain in power for another 20 or 30 years and 70 million Iranians will become radicalized."

"I know," President Bush answered.

"But does Vice President Cheney know?" asked Soroush.

The president chuckled and walked away.

Labels: , , ,

Thursday, February 15, 2007

Let's Talk Capital Flight

EUR/USD 1.3127 Hi 1.3155 Low 1.3118
120.19 Hi 120.80 Low 119.78
AUD/USD 0.7782 Hi 0.7841 Low 0.7824
EUR/JPY 157.83 Hi 158.63 Low 157.33

Ben Bernanke testified yesterday and suddenly nothing else matters. It doesn't matter that HSBC was forced to admit that the U.S. Housing Market, particularly the sub-prime market which it unwisely bought into, is struggling. It doesn't matter that U.S. economic statistics continue to surprise on the downside and it doesn't matter that George W. is gearing up to open ANOTHER front in the ENDLESS war on terror. All that matters is that RATES in the States are on hold. Oh and it matters that Ben Bernanke has noticed inflationary pressure may have moderated. Well, well done Ben!!

Trichet, the man with the patrician manners and the face of a HAG, has also noticed inflationary pressures have moderated but it appears that the Headline Rate of Inflation is no longer his primary concern. Or rather it is his concern but he has ways and means of knowing how the "Inflationary Threat" will evolve over time. He doesn't need tea leaves and he doesn't study the entrails of slaughtered bulls. Oh no, what he does focus on is Credit Growth and Money Supply. Credit Growth has been rising rapidly in the EuroZone recently. And this is not good. Do we have a number, Mr. Trichet, which would be GOOD?? Which particular single digit would you prefer?

Now Credit Growth is a fairly lumpy piece of data. It can hide all kinds of sins and all kinds of virtues. People in the EuroZone might all be borrowing like mad to buy the latest plasma screen on offer. But then again this is not the United States where conspicuous consumption is a national sport. Perhaps they are borrowing so that they can invest in more productive equipment.

The consequences of the TYPE of borrowing taking place is very important. Productive investment reduces inflationary pressure by allowing us to produce more with the same input. Borrowing which merely finances DEMAND obviously creates DEMAND-LED inflationary pressure.

Trichet doesn't seem to be interested in finer distinctions. He is looking at the number as a whole and seems to have already decided where inflation is heading. UP, that's where. And with inflation, interest rates are also heading up in the EuroZone. We wouldn't want to get too excited here and allow a sustainable economic recovery or anything subversive like that. No. And keep your wages growth low or we will hit you over the head with a sharp rise in interest rates and then you will be sorry. In his next life Trichet will be working at Wal-Mart and living in a trailer. Unfortunately for now he is head of the European Central Bank.

Not surprisingly the EUR/USD is bid as the markets react to the divergent interest rate outlooks. The EUR/USD is also reacting to the divergent economic story. And now the divergent economic story is spreading to the USD/JPY. This is not good. Well not for the USD anyway.

The outlook for the USD remains clouded AT BEST. Today saw the release of Net Foreign Purchases in the States. These numbers measure foreign capital inflows. Now the U.S. needs foreign capital like never before and the numbers weren't good. JUST to keep the USD steady the U.S. needs to attract upwards of USD 70 billion every month. In December the purchase of long term assets came to just USD 15 billion. But when short term assets were also considered there was a net Capital FLIGHT. Which means that not only is the U.S. NOT attracting sufficient capital to keep the USD afloat, money already invested in the country is leaving. The PPT will really need to get to work to keep everything ticking over as required.

Last year Japanese investors were the largest sellers of U.S. Treasuries. That means while a lot of people were selling U.S. Treasuries the Japanese were selling the most. So it seems that Japanese investors did take advantage of the favourable exchange rate to EXIT the country. Of course the Republican newswire known as Bloomberg attempted to put a positive spin on the data. But if you add things up we have Japanese investors leaving, OPEC selling USDs and China looking to DIVERSIFY (read sell USDs). And the U.S. still has this unbelievably LARGE external funding requirement known as the Current Account Deficit. Which incidentally reached a RECORD last year.

So the USD is in trouble. And the Carry Trade crowd hasn't even really started to PANIC. Yet. Not to worry. Cheney is due to make a trip to Japan soon. Pressure will be brought to bear. The U.S. doesn't want Japan to raise rates quite yet. That would only increase the selling pressure on the USD. Which, of course, would be ultimately negative for the U.S. Financial Markets. Which would mean that George W. and his devious friends would have a) involved the U.S. in costly and illegal wars, b) overseen the sharpest deterioration in the U.S. Federal Budget EVER and c) screwed up the domestic economy. That's quite a hat trick. Though when you consider who is involved I guess it's not all that surprising. What do these guys do for an encore? Better not ask.

OIL 58.26
GOLD 674.00

The scary global economic scenario is keeping a lid on the price of OIL. But the price of GOLD keeps rising. The PPT, which we know really doesn't exist (if you don't exist you can't go to jail), seems to be struggling here. They are losing the battle to keep the floor under the USD. Treasuries are at risk. And GOLD looks set to continue its UP, UP and AWAY trajectory. What happens to people who don't exist and nevertheless don't manage to fulfill their brief? I guess we will never know.

Labels: , , ,

Monday, February 12, 2007

Dancing with the Devil

EUR/USD 1.2961 Hi 1.3039 Low 1.2940
121.72 Hi 122.12 Low 121.58
AUD/USD 0.7724 Hi 0.7780 Low 0.7719
EUR/JPY 157.79 Hi 159.03 Low 157.56

The current international GEOPOLITICAL situation defies explanation. It is hard to find a plausible explanation for why George W. launched an all-out attack on Iraq. Provided, of course, that you discount the argument that he is simply insane. This is the explanation of choice for many, but then how do you move forward if that is your premise? The USA is currently controlled by a bunch of crazies, run for your life? Financial markets, thus far, have certainly not bought into that scenario.

So let us put aside that explanation and try to understand how we got where we are now and what is likely to happen in the months ahead. Given the risks we can not afford to simply ignore GEOPOLITICS and concentrate, say, on economic statistics.

The Anglo-American invasion has not brought democracy to Iraq, only chaos and civil war. Once Saddam Hussein's regime had been removed in the early days of the invasion it seems inconceivable that there was no attempt to establish order in what is notoriously a fractured nation. Troops were not sent, those that were stood idly by as mobs rampaged. Indeed there have even been whispers of covert Anglo-American attempts to inflame the violence.

There are two plausible explanations for what happened immediately after the invasion of Iraq: colossal incompetence or malevolent intent.

Then there is the war in Afghanistan. The Anglo-American alliance led an invasion of Afghanistan in 2001. This was "officially" justified as a response to 911. And the great and the good would have us believe that Afghanistan is the just war. Not that George W. and his buddies have actually captured Osama Bin-Laden the man we are led to believe, on flimsy evidence, was responsible for 911.

Indeed the only politician who has publicly suggested that the "official" explanation of what happened on September 11 is a lie is the Former German Defense Minister, Andreas Von Buelow. Elsewhere only silence.

So let's assume that Bin-Laden is responsible for 911. The "official" version of events still remains difficult to comprehend. London did not bomb and invade Ireland, at least not this century, in an attempt to find the terrorists who were blowing up bits of Britain. So why did the U.S. attack Afghanistan?

Since the official explanations for these conflicts are constructed on such poor fundamentals we must conclude the "official" justifications for the current Anglo-American Imperial adventures are not the real reasons for these hostilities.

But we still need to know why these WARS were waged. Without that knowledge we are no closer to understanding what is likely to happen next. If we don't know why Afghanistan and Iraq were attacked then we can't understand what might provoke an Anglo-American attack on Iran.

We must consider other scenarios, other justifications. To do so we must be prepared to put our automatic loyalties aside.

If the possibility of malevolent intent is considered then these conflicts become somewhat less mysterious. Once you make the leap, then the logic of the whole sordid episode becomes, if not acceptable, then understandable. Tony Blair's lying speeches become necessary. The doctored, misleading "intelligence" can be seen to build a case for war were there was no case. And the dismissal of popular opposition to the Iraqi invasion is understandable.

When the intent is WAR from the get-go everything else is just details.

Regardless of the Conspiracy Theory you prefer, all the signs are there that suggest some kind of military action against Iran is likely in the reasonably near future. We are talking weeks. Certainly many current commentators suggest that an attack on Iran, on whatever the pretext, is imminent. Unless of course George W. is removed from office with considerable haste. That seems unlikely. Congress is divided and focused more on the 2008 Presidential elections. The next 2 years belong to George W. and to be optimistic about what he might achieve in that period seems hopelessly naive.

Iran has responded to the obvious signs that an attack is being planned by saying there will be aggressive retaliation to any U.S. attack. All things considered, the plan for WWIII seems to be going smoothly.

Currently Global Financial Markets seem more concerned about the direction of monetary policy in the U.S. and Japan than the possibility of an attack on Iran. They shouldn't be. Given the evidence it would appear that an attack on Iran is likely and there is a chance that the longer term goal is to create the conditions for a major global conflict. Financial markets meanwhile are pricing for NO VOLATILITY and no risks. Pricing for perfection at a time like this is a leap too far.

Stocks are at risk. The USD/JPY may have been granted a temporary reprieve by the anemic G-7 statement released on the weekend, but TEMPORARY is the operative word here. The United States can't afford the WARS it is waging now. More conflict is not going to help the U.S. economy, the USD or U.S. Stocks. U.S. Bonds could get blown out of the water. And ignoring the risks does not make them go away.

OIL 58.71
GOLD 668.70

The slow motion disaster of the GEOPOLITICAL mess in the Middle East has seen GOLD outperform, PPT or no PPT. That is unlikely to change.

Labels: , , , ,

This page is powered by Blogger. Isn't yours?